Recently, Kakao Bank (Korea’s 2nd largest Internet bank) was launched. It opened at about 7 am on the first day and after 12 hours had opened 180,000 new accounts. By the fourth day, more than 800,000 people had joined. In this way, FinTech (combination of finance and technology) moves mobile financial settlements, mobile remittances, online personal property management, crowdfunding, and other financial services to the mobile Internet environment.
 |
FinTech refers to changes in financial services and industry through the convergence of finance and IT. This means eliminating the financial services previously provided offline and moving the overall financial infrastructure to the mobile Internet environment. It is broadly used in four areas: payment services: financial data analysis, financial software, and platform. These services originated when moving the existing services to online banks, and there are also cases where services that are inconvenient or simply not offered offline have been made available online.
For example, a service that makes it possible to enter a password or fingerprint, for a loan, banking, or asset management, and must be installed by Active X or an authorized certificate every time. K bank and Kakao bank are Internet professional banks (defined by the amendment of the Banking Law as "banks that conduct banking by the electronic financial transaction method"),
 |
So, how and why did FinTech evolve? After the 2008 financial crisis, the financial industry experienced profitability deterioration due to financial regulations: the financial industry yield, which had been 15 ~ 20% before the financial crisis, dropped to 7 ~ 10%. So, the financial industry has taken the lead in the IT industry to tackle the difficulties and has mobilized the financial transaction process. And his has led to the development of related industries. According to Google search trends, the term 'FinTech' existed before 2004, steadily increase from 2008. And in 2014, investment in the FinTech industry was worth about US $ 3.5 trillion. This is more than a threefold increase from the previous year, which is very rapid compared to the 63% increase in global venture capital. In addition, the expected investment in the FinTech industry will reach US $6 billion in 2018.
FinTech has four major areas: payment service, financial software, financial analysis, and platform. Payment services are the fields most familiar to general financial consumers. Payments services provide convenient services to allow users to electronically pay businesses. PayPal, which is synonymous with FinTech, is a payment service company. Financial analysis determines a user's taste and psychology as well as calculates the appropriate interest rate by calculating the credit score based on the customer's financial transactions. Financial software is the area where software is created and provided to make financial services more efficient. Platform provides the infrastructure by which financial customers around the world can work freely without financial intermediaries. In 2008, the portion of investment in the payment sector was the highest at 70%, but fell to 28% in 2013. On the other hand, the portion of investment in the financial software sector increased from 10% in 2008 to 29% in 2013. The financial data analysis sector also increased from 16% to 29% in the same period. The portion of investment in the platform sector rapidly increased from 5% to 14%. These diverse fields are under development and related startups are also emerging.
 |
The advantages of FinTech compared to existing financial services are stark. The first is to provide accessibility, for example, a US payment card payment terminal 'Square'. It is designed to eliminate the space limitations of card terminals and to store card payments by anyone with a smartphone. This allows small businesses to use card payment services relatively easily and inexpensively. As a result, Square received more than KRW 30 trillion in payments in 2014, and its corporate value has grown to KRW 5 trillion since its establishment in 2009. The second advantage is automation. Existing financial companies use IT technology to partially deal with human needs. On the other hand, FinTech corporations have allowed IT technology to do everything possible and only involve people when it’s unavoidable. The third advantage is the active use of big data. FinTech uses the information that is provided by the customer as well as all possible types of data in areas that are not used by existing financial companies. It can also be automated to lower the likelihood of errors, reduce the likelihood of loss and increase profitability. The last benefit is the provision of fast and transparent information. Existing financial companies have only provided financial services.
However, FinTech companies provide a clear view of all the information that financial consumers want to know, so that they can be seen by financial consumers in real-time.
However, there are some concerns around FinTech. The first is security. Electronic banking accidents and Internet-related crime have increase due to hacking, distribution of harmful programs, and leakage of personal information. The second problem is related to trust. Unfair competition, external effects, and information asymmetry that cause damage to consumers may arise. In the case of non-face-to-face transactions that do not go through a trusted third party (such as a bank or a public institution), there is a high possibility that various types of disputes or misunderstandings are likely to occur. There are also problems with the digitally vulnerable. Generations or groups that are not familiar with the digital landscape, such as elderly people, may have limited access to financial services.
Nonetheless, FinTech is evolving globally in many areas. Already, overseas countries have been cultivating FinTech related industries for a long time and many large-scale businesses are appearing. The volume of transactions related to FinTech is US $770 billion in US, US $443 billion in China, US $167 billion in UK and US $136 billion in Japan, in 2016. Here are some examples from other countries.
First is the US. They form the world's largest FinTech market through technological innovation. Apple and Google have been focused on FinTech in Silicon Valley. New York, the world's largest financial district, is also expanding FinTech's innovation and investment. PayPal is one of the famous FinTech companies in the United States. PayPal is an electronic payment company in the United States, which originated in December 1998, and its corporate value has risen from 1.7 trillion won in 2002 to 57.2 trillion won in 2015. PayPal provides a service to the buyer by receiving money and delivering the money to the seller and receiving the commission. This method is very popular because it allows you to trade without giving your credit card number or account number. Even if you use a different currency, PayPal can exchange money with foreign traders.
OnDeck was established in the US in 2007 and its corporate value is about 1.3 trillion won. OnDeck makes it possible to apply for a loan on a 100% online basis and provides a service to deposit funds into a designated account the next day. The self-developed credit evaluation algorithm promptly evaluates the loan applicant's credit history and lending considering the transaction details of the financial institution, cash flow, reputation on SNS, etc., determining the creditworthiness of the borrower with various big data bases. Then, the use of cash flow, credit rating, SNS, etc., can be evaluated and a loan given within 24 hours. They have worked for small business owners over the last seven years with a loan brokerage of 1.7 trillion won.
China is also seeing much investment in FinTech. Mobile consumption is rapidly expanding due to the rapid growth of the mobile application market. Global IT companies, such as Alibaba, have emerged (a combination of e-commerce and finance). Alipay is a subsidiary of the Alibaba Group, established in 2004, providing payment, settlement and financial services. With their services, credit card companies and banks can be substituted in the settlement area, and loan services can be provided when there is a shortage of purchase funds. AliPay has a personal credit rating agency to collect and analyze a user's online and offline payment history. The remaining balance after payment can be invested by selecting investment products, and even if customers do not have the money at hand, they can buy through a service named Huabei and use various benefits associated with their credit score. There is also an online insurance company in China called ZhongAn. The company was founded in 2013 as a joint venture between China Ping An Insurance, Alibaba and Tencent and was named as one of the top seven insurance companies in the global top 100 FinTech companies, according to the consulting firm KPMG, in 2015. The reason for being chosen as 1st was because of product development using big data, automated underwriting, an automatic insurance claim system and accurate risk management. They started with e-commerce and settlement and expanded to various insurance services. Therefore, ZhongAn emerged as an innovative online insurer.
The UK is actively implementing government policies on FinTech. They built Tech City in the east of London (as a FinTech Mecca) and it has seen rapid growth in 2010, there were 85 high-tech enterprises, but by 2012, 5,000 companies had become resident in Tech City.
And, in 2013 alone, 15,000 new companies were established. In the same year, the investment growth rate of FinTech exceeded 600%. Not only companies but also technology-related educational institutions and nonprofit public institutions are entering. The UK is striving to maintain and strengthen its position as the global financial center and fostering related industries centered on large banks. In the UK, TransferWise offers remittance services. It provides P2P overseas remittance, which consumes one-tenth of the remittance cost of existing banks. If the currency is different, the exchange demand of the two countries will be matched in each country. Markit, on the other hand, is a company that provides investment information services. It conducts big data-based financial information analysis research for various corporate clients, including banks, hedge funds, insurance companies, asset management companies, and regulatory authorities. So, they provide customized platforms and services, such as loans and derivatives.
Cryptocurrency is another development of FinTech. If financial services are evolving with the payment sector then lending and asset management services, which are the representative areas of FinTech, have developed virtual money, such as bitcoin, which has revolutionized the principle of the financial system. In this sense, bitcoin is the most extreme form of pin-tec.
Bitcoin is a type of virtual currency that generates a new coin using the hash function, which is a kind of encryption technology, and verifies the transaction details. Indeed, there are many types of cryptocurrency, such as Etherium. Cryptocurrency, in which there is no central bank, creates money by the user using the associated program to find the coin at regular intervals and then receive compensation. (in the case of bit coin). Security is very tight because they use block chains. (a simple example is that it is virtually impossible for a hacker to have more than 51% of the total user CPU power for hacking). Cryptocurrency providers offer faster and simpler services, such as low or no transfer fees, like Internet banking. Other countries, such as China and Russia are investing in related industries by easing regulations. In Korea, Park Yong-jin, a member of the National Assembly, announced that he will launch an amendment bill for the electronic financial transaction law that will be approved by the Exchange on the occasion of a legislative hearing for the protection of virtual currency users.
As we have seen, there are some disadvantages to FinTech but it has huge potential, and the world is fostering related industries. If so, what is the situation in Korea and what kind of preparations are we making? There are also start-up companies in Korea related to the P2P financial platform, crowdfunding, settlement, remittance and security. The famous corporations are the ‘Toss’ in the remittance field, ‘the Cheat’ in the security field, and the most representative is ‘Kakao bank’. The reason Kakao Bank is an issue is because it is an Internet bank. By the end of 2017, all ATMs will be exempted from deposit and withdrawal fees, and foreign remittance fees will be cut to a tenth. Their check cards are 0.2% discount at all merchants and 0.4% at weekends. Also, there is a transport card function and deposit rates are higher than existing banks and lending rates are lower than those of commercial banks. Due to these advantages, KakaoTalk was able to increase its market cap by about 1 trillion won in three trading days since the launch of the Kakao Bank. And, based on the 43 million users of KakaoTalk, over 1 million people opened an account in less than a week. The biggest difference between K-bank, existing internet banks, and other banks is that Kakao Bank has a larger potential customer pool and offers reduced procedure time.
Korea has only relatively recently become focused on FinTech and thus its FinTech industry lags behind other countries. The reason for this is that almost all financial services in Korea use programs based on ActiveX or certificates. In other words, in Korea, the mobile environment and technology is advanced but regulations of the financial industry are stunting the development of the FinTech industry. As the new government takes power, many of the existing FinTech industry regulations are expected to be mitigated and transformed from positive regulation (allowing only allowed businesses) to negative regulation (allowing anything except not allowed businesses).
 |
And Inha Times(IT) interviewed Korea Fintech Association official Lee to find answers to their prospects and problems toward FinTech industry.
IT : What do you think of the prospects of FinTech market?
LEE : Global mobile traffic volume has doubled every year since 2013, and the mobile payment market also has increased sevenfold over six years. The trend is also likely to continue to increase in the future.
IT : What kind of attitude should university students have toward FinTech?
LEE : Many college students are preparing for the start-up of FinTech. What they need is to have knowledge of both IT and finance. In Korea, there is not enough professional manpower to know both IT and Finance. Those in the financial world do not know IT at all, and those in the IT field don’t know finance. As a result, FinTech start-ups can only be created within the intersection of these two fields.
FinTech related industries are developing globally. Korea's FinTech related technology falls behind that of the other top players. As it is a core area that finance and technology are combined, it seems to be necessary to find a way to complement our weaknesses while improving our competitiveness and strength.
이상민 0530ldsm@naver.com
